Introduction to limited company tax

At Wagners, we meet owners of a range of companies in all shapes and sizes and from different sectors.

Yet all have one common concern.

They all want to ensure that they pay the right amount of tax, ensuring that they honour their obligations under HMRC guidelines while still keeping their cashflow healthy.

Many companies worry that their tax liability may be disproportionate to their income, and HMRC and the tax system not sympathetic to the ups and downs of normal business trading, putting a stranglehold on their cash flow and endangering their operations.

Many of our clients find that setting themselves up as a limited company can reduce their tax liability, saving them money and ensuring that their cash flow remains healthy.

Yet, while it may be advantageous in this regard, there are still caveats.

Getting paid when you are running a business is much more complicated than when you are an employee.

Likewise, while you may enjoy a smaller tax liability this is undoubtedly more complicated to manage.

Fortunately, we are on hand to simplify your understanding of the tax liability for UK limited companies and allow them to make well-informed decisions about all their tax position.

Can’t I just pay myself entirely in dividends?

Because dividend tax rates are much lower than those for income tax, we understand that it may be tempting not to even take a salary.

However it is not quite that simple and it is worth taking something by way of a wage.

If you don’t take a salary this means that you will fall outside the lower earnings limit for National Insurance and this means that while you won’t have to pay National Insurance, you won’t be able to benefit from it either.

This year won’t add any entitlement to your state pension entitlement or statutory sick/maternity pay.

What’s more, HMRC are likely to view it as suspicious if you do not take a salary and could apply extra scrutiny to your business and personal finances.